Brazil's President Lula: 'Father of the Poor' Has Triggered Economic Miracle

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In other words, President Lula has good reason to be bursting with self-confidence. US President Barack Obama and French President Nicolas Sarkozy are courting him, while Wall Street practically worships him. He is even the subject of a new film "Lula, the Son of Brazil," which premiers in January and depicts the saga of his rise from shoeshine boy to president.

All of Brazil is basking in the fame of its president who, less than seven years after coming into office, now enjoys an approval rating above 80 percent. The opposition has all but disappeared and the national congress has become submissive. Lula runs the country like a patriarch, so much so that his predecessor, Fernando Henrique Cardoso, is already accusing him of "authoritarianism" and warning that Brazil is on the road to state capitalism.

There is a kernel of truth to Cardoso's claims. Lula has never had any confidence in the market's ability to heal itself, and he sees the state as the framer of a new social order. He loves impressive projects and nationalistic gestures. He is a pragmatist, but he despises speculators. "White people with blue eyes" brought the world to the brink of financial ruin, he said recently. He meant bankers.

The financial crisis has only confirmed Lula's skepticism toward capitalism. Lula believes that Brazil coped with the crisis more effectively than other countries because the government took corrective action early on. According to Lula, fighting poverty and the equitable distribution of income cannot be left up to the market.

Burgeoning Middle Class

Under his leadership, millions of Brazilians have joined the middle class. The evidence of this social upheaval is everywhere: In the shopping centers of Rio and São Paulo, crowded with loud families from the suburbs, or at airports, where young mothers stand in line at the check-in counter, waiting to board an airplane for the first time in their lives. "The gap between rich and poor is beginning to close," says economist and poverty expert Ricardo Paes de Barros.

The key to what is probably the biggest redistribution of wealth in Brazilian history is the Bolsa Família social program, under which any needy mother who can prove that her children are going to school receives up to 200 Real (around €80) a month from the government. It may not seem like much at first glance, but this government subsidy helps millions of people survive in northeastern Brazil.

Social experts initially criticized the program as nothing but a handout, but now it is seen as a model worldwide. More than 12 million households receive subsidies, with most of the money going to the Northeast. Thanks to Bolsa Família, the once poverty-stricken region has started to boom. Many Nordestinos have started small companies or opened shops, and industry has discovered the Northeast as a market. "Now the region is growing under its own steam," says Paes de Barros.

Lula was blessed with luck. His predecessor, Cardoso, had already stabilized the economy, shaken by hyperinflation, when he was finance minister in 1994. He imposed a currency reform on the country and pushed through laws that forced the government to pursue sensible budget policies. Lula has not changed any of this.

There was also no need for Lula to reinvent Brazil's economic and social policy. Brazil has a tradition of government dirigisme reaching back to the 1930s.

Brazil's Own Marshall Plan

The nerve centers of the country's economic policy are housed in two imposing skyscrapers in downtown Rio. The National Development Bank (BNDES), which has its offices in a glass-and-steel tower, was created with American help and using Germany's KfW Banking Group as a model, and it financed a Brazilian version of the Marshall Plan.

In the 1990s, the BNDES successfully handled the privatization of many government-owned companies. Today it provides assistance in corporate mergers and acquisitions, helps ailing companies and finances the government's strategic investments.

The BNDES is highly regarded. It is believed to be largely corruption-free, and it pays the country's highest salaries. "A year ago, foreign banks were knocking on my door asking whether Brazil was prepared for the financial crisis," says Ernani Teixeira, one of the bank's finance directors. Teixeira was able to reassure them, noting that the BNDES had set aside 100 billion Real in additional reserves. Last year the bank issued more loans and loan guarantees than the World Bank Group -- and even turned a respectable profit.

The second pillar of the Brazilian economic miracle stands diagonally across the street: a concrete block, illuminated at night in the national colors, yellow and green, is the headquarters of the semi-governmental energy group Petrobras. The company plans to invest $174 billion in the next four years in drilling platforms, ships and other equipment to exploit large oil reserves off the coast of Brazil.

A year-and-a-half ago, Petrobras discovered new oil beneath the ocean floor. However, the oil will be difficult to tap, as it is capped by a layer of salt at depths of at least 6,000 meters (19,700 feet). The first wells are not expected to begin producing for at least another six years. The revenues from this offshore oil will be deposited into a fund that the government uses primarily to finance new schools and universities.

Lula recently introduced draft legislation that would regulate the exploitation of undersea oil reserves, thereby strengthening Petrobras's monopoly. Experts fear that Lula is creating a powerful, corruptible monster corporation.

Bureaucratic Hurdles

Wasn't the massive power outage that simultaneously shut down large parts of the country two weeks ago a warning signal that the government may have bitten off more than it can chew? The modernization of Brazil's crumbling infrastructure is moving forward, but slowly. Billions of dollars in investments in ports, road construction and the energy sector exist only on paper, with implementation hampered by a Kafkaesque bureaucracy and sluggish judiciary. Also, the country also hasn't had much success combating crime.

Lula has one more year in office, after having resisted the temptation to manipulate the constitution to guarantee his re-election for a third term. Eager to preserve his legacy, he pushed through the nomination of his chief of staff, Dilma Rousseff, as his successor, despite resistance within his own Workers' Party.

Rousseff, who was a member of left-wing guerilla groups after the 1964 military coup and was later imprisoned for several years, has a reputation as a competent technocrat, but she is seen as unapproachable and authoritarian. She has been following the president on his travels around the country, opening new roads and power plants. Lula supports her as adamantly as if he were campaigning himself.

She is also with him on his tour through the Northeast, even though doctors removed a tumor from her armpit only a few months ago. She is believed to have recovered, and she now wears a wig following chemotherapy. Her face is pale and her smile seems frozen. The president pulls her to his side when he walks up to the microphone, and he repeatedly mentions her name. Few people in the region know who she is.

Elizete Piauí, still completely intoxicated by her encounter with Lula, has seen her on television. She knows that she is Lula's candidate, and she will campaign for Rousseff, even though she would prefer to see Lula remain in office. "I will vote for anyone he proposes," she says.

Lula has also promised to return once more. Before his presidency ends, he plans to make another trip to the Northeast to see how far the construction work on the Rio São Francisco has progressed. Perhaps, Elizete hopes, he will have fulfilled her greatest wish by then, and she will be able to serve him a glass of water -- from her own tap, in her own hut.

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• Part 1: 'Father of the Poor' Has Triggered Economic Miracle
• Part 2: Overwhelmingly Popular Patriarch